NYSE Euronext pays 260 mln euros to amend clearing deal

DougCameron

CHICAGO (MarketWatch) -- NYSE Euronext
NYX, -0.22%
plans to launch an in-house clearing service for its European derivatives exchange in the first quarter of next year, paying LCH.Clearnet EUR260 million to shrink their existing trade-processing arrangement.

The transatlantic exchange operator announced plans in March to take over some clearing functions for its London-based Liffe derivatives arm, mirroring efforts at rivals to create or expand in the profitable business of providing processing and guarantee services.

LCH.Clearnet still will provide core clearing services under an outsourcing deal, including managing risk, setting margin and handling defaults. The company won praise for its handling of complex defaults created by the bankruptcy of Lehman Brothers International.

NYSE Euronext said the new arrangement still would be accretive to earnings next year despite the one-time payment. Executives said the LiffeClear unit, whose launch is subject to U.K. regulatory approval, would allow more innovation and product launches, as well as potential co-operation with NYSE Liffe, its fledgling U.S. futures unit. Clearing for the U.S. business will be provided by the Options Clearing Corp. from next March.

"For NYSE Euronext, LiffeClear will enable competition against Liffe's vertically integrated international peers on a more level playing field," said Hugh Freedberg, head of global derivatives, in a statement.

CME Group Inc. (CME) and the Eurex arm of Deutsche Boerse AG (DBOEF), Liffe's two larger rivals, already own their own clearers. IntercontinentalExchange Inc. (ICE) also has created its own in-house clearer and plans to shift all its London-based business from LCH.Clearnet next month, four months later than planned.

The vertical integration of the exchange business pushed LCH.Clearnet toward a potential merger with the Depositary Trust and Clearing Corp,. which handles the bulk of U.S. equity securities trades. The companies last week outlined a proposal for DTCC to acquire LCH.Clearnet by next March.

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